Oil sags to 6-week low as war worries ebb

19 July 2008 — 8:10am

Crude oil fell for a fourth day, capping the biggest weekly decline in more than three years, as the Bush administration's decision to participate in nuclear talks with Iran eased concern of a possible military conflict.

Prices tumbled 11% this week on reduced tension between the US and Iran, which holds the world's second- largest oil reserves. A slowing global economy, faltering US fuel demand and rising supplies helped push futures to their biggest weekly dollar decline ever.

``There's been a significant lessening of tensions with Iran in recent days,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``A feared imminent attack on Iranian nuclear facilities helped push prices to records. The meeting in Geneva is a significant step.''

Crude oil for August delivery fell 41 cents, or 0.3%, to settle at $US128.88 a barrel on the New York Mercantile Exchange, the lowest close since June 5. Futures reached a record of $US147.27 on July 11 and have risen 72% from a year ago.

This week's decline was the biggest in percentage terms since December 2004, when heating demand in the US Northeast eased because of mild weather. Oil closed at $US42.54 a barrel that week, less than a third of today's settlement price. The $US16.20 a-barrel decline was the biggest weekly drop in dollar terms since the futures began trading in 1983.

``There's been a lot of talk about what the administration would have to do to lower oil prices,'' Kilduff said. ``Making a peace overture to Iran is doing the job.''

Geneva talks

President George W. Bush is sending the State Department's third-ranking official, Undersecretary for Political Affairs William Burns, to multinational talks in Geneva, the highest- level discussions between the two countries since Iran's Islamic revolution in 1979.

Iran has said it may blockade the Strait of Hormuz, the shipping lane for a fifth of the world's crude, if its nuclear facilities are attacked. The country is the second-biggest producer in the Organization of Petroleum Exporting Countries.

``You have seen some of the Iran risk premium leave the market this week,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``The macroeconomic news was the primary reason for the drop. Demand is terrible.''

US fuel consumption fell 3% in the first half of 2008, the biggest decline for the period in 17 years, as high prices and a slowing economy curbed demand, the American Petroleum Institute said in a monthly report today.

Ten of 22 analysts surveyed by Bloomberg News, or 45%, said prices will fall through July 25. Seven of the respondents, or 32%, said oil will rise and five forecast little change in prices.

Brent crude oil for September settlement fell 88 cents, or 0.7%, to settle at $US130.19 a barrel on London's ICE Futures Europe exchange, the lowest close since June 5. Prices climbed to a record $US147.50 on July 11. Bloomberg News